WASHINGTON - Homeowners seeking relief under the Obama administration’s mortgage aid program will be required to provide proof of income upfront, a significant reversal for the problem-plagued effort to stem the foreclosure crisis.
Borrowers had been able to state their income orally and provide documentation later. Mortgage companies, however, said many borrowers did not return the documents, sparking fears that thousands of people will be kicked out of the program this winter. About 66,500 borrowers, or 7 percent of those who signed up, had completed the process as of December.
Lenders will now be required to collect two recent pay stubs at the start of the process, the Treasury Department said. Borrowers will have to give the Internal Revenue Service permission to provide their most recent tax returns, rather than submitting the returns themselves.
The changes become mandatory for loan modifications made starting June 1. The $75 billion program is designed to lower borrowers’ monthly payments by reducing mortgage rates to as low as 2 percent for five years and extending loan terms to as long as 40 years.
Phyllis Caldwell, chief of Treasury’s homeownership preservation office, defended the administration’s initial decision to allow people to qualify based on oral statements of income. “We needed to provide immediate relief to more homeowners faster,’’ she told reporters.